Making Tax Credits Work For Us

James123_2

Hi
I’m just getting my head around TAX CREDITS. My wife & I are likely to have an income of about £14k, we’ve now discovered! This includes some pension entitlement and incapacity benefit. We have one child.
IF our income rises beyond the £15k ish limit I understand that 39p of the child element is deducted for every £1 earnt. As the reduction is levied on gross earnings there seems little advantage in having extra income after income tax & NI are also levied on the full amount (making sense). Is there a LEGAL way of mitigating against the reduction in a tax credits award by losing/investing any income above £15K. I know I can put this in a pension, but I have a limited lifespan due to cancer. I’m not trying to do anything dodgy – just looking at ways of making the system work for us. We’re going to struggle on £14k gross anyway with a mortgage and the desperately unfair burden that is COUNCIL TAX of £1442!!
Neither of us is able to work - FIRST time in 28 years!
Hope this isn’t too confusing!

bestpud

I don't know if those figures are correct, but if they are, then surely 61p in every pound is better than none at all if you are going to be struggling? You are essentially saying it will be hard to survive but you want to manage without two thirds of your income over £15000 anyway.

My other thought is maybe paying into a pension for you OH if your life is limited - she may well need it later on?

James123_2

Yes, thanks for reading this - you understand perfectly. I worked-out that each £1 over the threshold would be worth about 30p after NI & tax. I suppose I'd rather put something 'away' for when I'm not here.

James123_2

Thanks again. Yes, I have chemo-brain. First post wasn't too clear. I'm trying to invest in something in order that my family have some options when I'm not here.
I guess I knew the answers, re above, but it's good to have these confirmed anyway. Any other suggestions always welcomed.

bestpud

Where does your £15000 income come from if neither of you are working?

James123_2

IB & pension makes-up 14k for both of us. Additional income could appear from my previous self-employment - royalties on works already sold, usuage Rights of my material etc etc - worked as author.

James123_2

I do notice in the TAX CREDITS blurb that pension income can be discounted where 'the pension includes an extra amount because you were disabled by injury on duty ...." Cetainly my wife's pension should be enhanced by a tiny degree as she had early retirement due to Heart Attack. Just wondering if this applies here ...
Perhaps I'd better ring Preston!

merlinthehappypig

James.

Any income from money invested in ISA's, PEPs and, most importantly, NS&I national savings certificates doesn't have to be declared as income for tax credit purposes so, if you have any investments, make sure that they are in these products.

Whilst the NS&I products won't give you the best rate of interest. it's a whole lot better than losing the 39p in every pound from the tax credits.

[Deleted User]

James123 wrote: »

I do notice in the TAX CREDITS blurb that pension income can be discounted where 'the pension includes an extra amount because you were disabled by injury on duty ...." Cetainly my wife's pension should be enhanced by a tiny degree as she had early retirement due to Heart Attack. Just wondering if this applies here ...
Perhaps I'd better ring Preston!

Unfortunately you still need to declare your wife's pension. You would only disregard it if it was a War Pension.

http://www.hmrc.gov.uk/forms/tc600_notes.pdf

Have a look at that webpage on page number 42 regarding pensions/other income you can disregard.

James123_2

Thank you to the last two posts. I appreciate that I might be seen to be manipulating the system, albeit perfectly legally and to the tune of only a few hundred £££. Possibly some folk might argue that 14K is more than sufficient to maintain wife and child - but it really is a matter of juggling finances. As such, if I could leave some finances intact for when I die, then this would have been a modest gesture to make. No pension as yet, so we're on IB of about £600 plus any TC - when they arrive. I'm in LINCS where the Council Tax jumped 11%!!
Enough moaning from me.

merlinthehappypig

James123 wrote: »

Thank you to the last two posts. I appreciate that I might be seen to be manipulating the system, albeit perfectly legally and to the tune of only a few hundred £££. Possibly some folk might argue that 14K is more than sufficient to maintain wife and child - but it really is a matter of juggling finances. As such, if I could leave some finances intact for when I die, then this would have been a modest gesture to make. No pension as yet, so we're on IB of about £600 plus any TC - when they arrive. I'm in LINCS where the Council Tax jumped 11%!!
Enough moaning from me.

It's nothing to do with manipulating the system. £14000 is not a great deal of money for a married couple and a child and you are simply making the best financial decisions in the face of a very difficult situation.